VDMA’s Joachim Schmid see more opportunity for acquisitions or consolidations in China than in Germany

German companies have always been innovators in the field of construction machinery, but has their competitiveness waned with the European crisis, and advancements made elsewhere? Stian Overdahl investigates

The construction machinery manufacturing industry is truly globalised, with companies building equipment from Finland to Australia. But several major industrial countries dominate, each known for a style of production: Japan with its high quality, effective designs; China with the advantages of a cheaper labour and a large production base; America led by major brand Caterpillar, and Germany with its long history of developing innovative and high-quality products.

Germany has long been at the fore of industrial developments, with figures that include inventors Rudolf Diesel (employed by MAN), and Gottlieb Daimler, and companies such as Wolffkran, which invented the modern tower crane, and Liebherr, which had its start when Hans Lieherr developed a small and easy to erect tower crane.

And it is an innovative spirit has made its impact felt in the Middle East, including long partnerships stretching back to the 50s, and vital solutions in major projects – think Putzmeister’s world record concrete pumping during the construction of the Burj Khalifa, or Bauer Spezialtiefbau, whose Saudi subsidiary won the $32 million contract for the enabling works for the Kingdom Tower in Jeddah late last year.

But with Southern Europe remaining mired in the economic crisis, China no longer a booming market, and manufacturers being forced to pour significant investment into the development of new engines to meet the European emission standards – are German companies maintaining their competitive edge?

Joachim Schmid, managing director of the Construction Equipment and Building Material Machines group within the VDMA, the German Engineering Federation, which represents various industry groups and companies, believes that the industry is always striving to deliver new solutions and products.

“I think it’s one of the efforts of [German] companies to really be innovative and always come up with clever solutions. It’s clear the ‘innovation spirit’ is still present and is very important for our members.”
He says that economically, most construction machinery companies are doing well today, though there is some ‘side ways movements’ in the industry. While markets in southern Europe are at historically low levels, economies in northern Europe, including Germany, remain solid.

“Altogether I would say we’ve seen better times, but it’s definitely nothing to worry about. The business is okay.”

The Bauma show in Munich this year featured the Bauma Innovation awards, with a number of categories including best machine, best construction process, and best design. The majority of the nominees were German companies – the awards were a continuation of German industry awards, and consequently there’s more awareness in the industry of the awards – though it’s hoped that the awards will gain more of an international profile in future years.

And examination of the winners of the Innovation Awards reveals that there’s clearly more being developed than just cleaner engines.
Deserved winner of the machine category was Herrenknecht, for a pipe-laying solution, the Pipe Express, that uses a tunneling machine to excavate the soil from the trench, while the pipe is pushed in behind the cutting face by a thruster. Able to lay a pipeline at a rate of almost one metre every minute once underway, the technology reduces the number of traditional machines required on the job site, as well as massively reducing the width of the work site along the length of the pipeline, and the amount of ground that has to be disturbed. Other winners at the innovation awards included a string-free concrete paving system from Wirtgen Group, which uses a hand-held GPS surveyor to automatically map out the path for a slipform paver, and the insect-like walking excavators from Kaiser.

Herrenknecht is best known for their huge underground drilling heads, and hold the world record for the largest Tunnel Boring Machine (TBM), with a drill face of 15.55 metres, used on a road tunnel in Italy. Closer to home, in Abu Dhabi, a large number of Herrenknecht TBMs, both large and micro-machines, are at work on construction of a new sewer system, with 14 machines in total delivered. The Middle East is seen as a market of great potential by the TBM industry, especially for micro-machines, and

Herrenknecht underlined their commitment to ensuring their machines are operational at all times by opening a service branch in the UAE’s capital early this year. The workshop will be able to perform top level machine overhauls, field service, and ensure a steady supply of spare parts.

“The Arab market provides for enormous future potentials – this is the reason why we have now established a full-service branch for micromachines in Abu Dhabi”, says Ulrich Schaffhauser, head of management of the utility tunneling business unit.

“Tunnel construction in the Gulf region is facing dynamic times and we want to offer our customers top services.”
Indeed, as significant as building a new machine is, supporting the machine through quality parts and service is equally important, if not more so. One of the strategic advantages German companies have when they operate in overseas markets is that they know how to organise their service offering, says Schmid.

“When you look at the reliability of machines, German companies are used to exporting, they have been doing it for many years and they know you always have to provide service.

“Other new upcoming countries or companies, they just do not have the experience of how to build up a good service organisation, that’s for example why Chinese companies really tried hard to establish more business in Europe and Germany, but they just didn’t succeed because they were lacking in service and availability of spare parts.

“That’s an asset of our companies – they know how to do it, and they know what markets they can go into – they need a certain size of market.”

Recently MAN Truck and Bus Middle East highlighted the importance of using official spare parts on its trucks, as well as the benefits that regular service can bring, with three MAN TGA 33.480 BBS WW trucks, belonging to Saif Bin Darwish Civil Engineering Contractors, passing 1 million kilometres after five years’ service, with no history of any major repairs or overhauls.

“The result also reflects our core message of being ‘consistently efficient’, with our world class, technologically innovative products,” said Rudolf Wiegand, vice president after sales Middle East and Africa, MAN Truck & Bus.

“Our goal is the continuous reduction of vehicle operating costs. We offer consultation about how to further decrease the operating costs and down times of vehicles. Success criteria such as reliability, ease of maintenance, value stability and fuel efficiency contribute to the consistent efficiency of MAN vehicles.”

While there are several industry giants in Germany – Liebherr sold $7.7 billion worth of construction and mining equipment globally last year, middle-sized companies have always been a significant component of its economy. There will always be questions about whether smaller companies can manage to remain competitive in a global market, where overseas production can be seen as essential to competitiveness in a volume business, especially in the Chinese market.

Larger companies are able to establish production outside of Europe, but Schmid says there are also a number of smaller companies, with 100-150 employees, that have production facilities overseas.

Viability in part depends on the nature of the product sold; companies that provide a technology that is high price, low volume, where individual solutions are delivered to customers, such as building material machines including crushers and batching plants, have seen success.

With these products, smaller companies can respond to interest in an overseas market, building up a plant for the steel work in the local market while producing core components in Germany, as well as building up its local service team.
An example is BHS, which sells crushers and batching machines for concrete, and has an assembly plant with steel works in China. The company has delivered a variety of crushers, mills and batchers to the Middle East.

But taking these kinds of production plants into foreign markets is easier than fully-fledged serial production plants for smaller companies. Even industry giants such as Daimler and MAN who produce their vehicles overseas in smaller markets only do so through various types of kit knock-down plants.

Atlas Weyhausen is a good example of a smaller sized earth-moving equipment maker that has not been active outside of Europe. Nevertheless, Middle East buyers can today purchase an Atlas compaction roller, after the company signed a distribution agreement with Hyundai Heavy Industries (HI) to distribute its compactors in the Middle East, Africa and Russia, branded as Hyundai HI – one way for a smaller company to expand overseas sales without needing to invest in distribution and building up a service team.

Looking at the bigger picture, German machines are known for being innovative and long-lasting, but they are not usually the cheapest. Selling the machines in the Middle East, where some buyers can be fixated on price to the detriment to their long term fleet management prospects, requires careful explaining to new customers about the benefits of buying a higher quality product. Nevertheless many major companies here have incorporated the view that quality is more is more important – and more profitable – that up front price.

And more than just the quality of the engineering, it is hard not to speculate that the Germans themselves make excellent sales people for their products and processes, with a methodical and patient mindset, and a know-how that has served their engineers and companies well over the past decades in the Gulf, seeing their equipment used on some of the most significant projects, whether tall towers or social infrastructure.